Hurricane Energy PLC (LSE:HUR) is to be bought by Prax Exploration & Production Plc in a deal that promises staggered cash returns to shareholders.
The deal has a value of up to £249mln according to Hurricane, which has recommended the offer from Prax.
It initially sees Hurricane shareholders receiving a special dividend worth £66.1mln in aggregate (3.32p per share) plus a £16.5mln cash takeover consideration (0.83p per share).
Hurricane shareholders will also receive ‘Deferred Consideration Units’, a security ‘which may deliver up to 6.48p per share in cash’, potentially worth £129.1mln, along with possible future supplementary dividends of up to £37.2mln.
How much is it actually worth?
Most of the deal’s worth remains contingent on the performance of the Lancaster oil field (which has been in decline, is down to a single well and has suffered problems with water cut).
Assuming that all future payments are made by Prax in full, Hurricane says the deal values the company at an 84% premium to its market value prior to the news – with shareholders due £249mln, making the deal worth 12.5p per share.
But, if no future payments are made to shareholders via the units, the core transaction upon close is worth £82.7mln or 6.8p per share which would be a 39% discount to Hurricane’s share price in the market.
In London, Hurricane shares rose by 16.45% in Thursday’s early deals to trade at 8p each, valuing the company at just over £161mln.
Hurricane board pleased with outcome
“The Hurricane board believes that the acquisition will deliver more cash than Hurricane Shareholders are likely to have received from Hurricane's Lancaster oil field, on a much expedited timeframe, as well as mitigating the risks associated with production from a single well development,” Hurricane chair Philip Wolfe said in a statement.
“In addition, the deferred consideration units offer the opportunity to share in future production out-performance or higher oil prices, as well as revenue from future acquisitions by Hurricane.
“Accordingly, the board of Hurricane is pleased to recommend the acquisition to shareholders," he concluded
Sanjeev Kumar Soosaipillai, Prax chair and chief executive, added: "The Prax Group is a leading British headquartered, international, integrated and diversified midstream and downstream energy group with revenues of c.US$10bn, and 1,274 employees across seven countries.
“We have a strong balance sheet, which provides a solid platform to execute our strategic growth plans, the next leg of which is to build a scaled upstream business.
“We see great strategic value in being a fully integrated energy company and have invested in experienced upstream and M&A management teams to drive this.
“The acquisition of Hurricane will provide a strong foundation for further upstream investments.”